23-Mar-2015 9:02 AM

Tokyo Narita Outlook Part 1: once a mega hub, international and transit passengers decline

Analysis

Yes, it does exist: an Asian airport with almost zero growth. Once the epicentre of the Japan Inc. growth spurt, Tokyo Narita managed only a 0.6% increase in passengers in 2014 despite plentiful slots being available. At regional airports where slots are not as readily available, Beijing Capital posted 2.9% growth in 2014, Shanghai Pudong 9.5% and Hong Kong 5.5%. Narita's 0.6% increase was comprised of 5.7% growth in the first five months and a 2.7% decrease in the last seven months. Jan-2015 traffic was down a further 6.7%.

Transit traffic is decreasing from a high of 21% in 2009 to 18% in 2014. Narita joins Seoul Incheon in suffering transit traffic decreases as Chinese hubs finally flex their muscle. Airlines have shifted to Tokyo Haneda while US carriers are favouring non-stops into other Asian cities rather than hubbing at Narita. There is some long-haul growth on the horizon with the arrival of Ethiopian Airlines and more flights from ANA and JAL, but Narita must contend with a decreasing presence from US carriers. Delta's Narita capacity will be down 11% in 2015 while United's will decrease 15%. American could decrease its size if its moves its Los Angeles flight from Narita to Haneda.

Domestic passengers up 23% but the core international passenger segment down 3%

Tokyo Narita recorded 35.6m passengers in 2014, up 0.6% from 2013.

Tokyo Narita Airport annual system passenger numbers: 2008-2014

83% of Narita's throughput was international passengers, down from 2013's 86% international share. Over the long-term Narita's total passenger numbers have grown, but international has declined, including 3% in 2014.

Tokyo Narita Airport annual international passenger numbers: 2008-2014

The smaller domestic segment grew 23% in 2014.

Tokyo Narita Airport annual domestic passenger numbers: 2008-2014

Without domestic growth, Narita would actually have suffered a decrease in 2014 traffic.

Tokyo Narita passenger volume by type: 2008-2015

The first half of the year was stronger with 5.7% overall growth through May-2014 and then a 2.7% decrease for the rest of the year. Jan-2015 traffic is down 6.7%, comprised of a 5.7% increase in domestic traffic and an 8.8% decrease in international traffic. Narita's international passenger volume in Jan-2015 was the lowest in over five years. The impact from the shift in Chinese New Year is likely limited as other prior years did not have Chinese New Year in January either,

Tokyo Narita Airport monthly international passenger numbers: 2009-2015

International Narita seats declined by 1.6 million. 900,000 seats moved to Haneda

In 2014, Tokyo Narita experienced a net reduction of international seats, comprised of an imbalance between the addition of 1.0m seats but a decrease of 1.6m seats. Some seats lost at Narita were removed entirely from the Tokyo area and not transferred to Haneda. EgyptAir in 2014 pulled out of Narita, taking out 23,000 seats while Malaysia Airlines decreased Narita capacity by 30,000 and Vladivostok Air decreased its capacity by 36,000. None of these airlines added any seats to Haneda.

There were some carriers that reduced both Narita and Haneda capacity: Asiana took out 95,000 seats from Narita and 6,000 from Haneda. Korean Air took out 41,000 from Narita and 29,000 from Haneda.

The largest seat decreases at Narita in 2014 were from JAL, Delta, Lufthansa, Air France, ANA and United. JAL took out 270,000 seats from Narita but only added 237,000 at Haneda. Delta took out 260,000 from Narita and added only 3,000 at Haneda. Lufthansa took out 189,000 from Narita and added 174,000 at Haneda. Collectively, only 879,000 seats were transferred from Narita to Haneda.

This figure excludes seats entirely removed from the Tokyo area (as in the case of EgyptAir, MAS, Korean Air etc.) as well as any growth airlines created at Haneda beyond what they took out of Narita: for example, Singapore Airlines reduced Narita seats by 32,000 but added 78,000 at Haneda. In this example, we only consider what SIA took out of Narita (32,000).

ANA took out 167,000 seats from Narita and added 564,000 at Haneda - we only count the 167,000 seats as what Narita "lost". There could be an argument ANA could have added flights from Narita if Haneda slots were not available, but we do not consider this.

The graph below shows the decreases airlines made at Tokyo Narita and if they added or removed seats from Tokyo Haneda. Of the 27 airlines that reduced international seats at Tokyo Narita in 2014 compared to 2013, only 10 made increases at Tokyo Haneda. Four airlines reduced Tokyo Haneda capacity as well and the rest either did not have or did not change their Haneda capacity.

Tokyo Narita international seat decreases and corresponding activity at Tokyo Haneda by airline: 2014 to 2013

Tokyo Narita joins Seoul Incheon in losing transit traffic

Tokyo Narita in 2014 saw 5.3m transit passengers, down 6% from 2013. This was its lowest figure in over a decade besides 2011, which was impacted by the traffic downturn as a result of the Mar-2011 earthquake and tsunami.

2014's transit passengers were only 1% more than in 2011. Transit passengers accounted for 18% of international passengers in 2014, down from a peak of 21% in 2009.

Tokyo Narita transit passengers and transit share: 2004-2014

Since 2011 Seoul Incheon has carried more international transit passengers than Tokyo Narita. In 2014 Incheon carried 36% more international passengers than Narita. Narita however still has a larger proportion (18%) of international passengers than Incheon (16%).

Tokyo Narita and Seoul Incheon transit passenger share: 2004-2014

Incheon in 2014 reported a decrease in transit passengers. Incheon attributed the decline to Chinese and Japanese hubs. Narita is not posting transit growth, but it is possible Narita is taking Incheon transit passengers to offset transit declines from US carriers. More likely however is transit growth at Chinese airports as well as Tokyo Haneda.

Tokyo Narita and Seoul Incheon transit passengers: 2004-2014

Ethiopian Airlines and ANA - plus LCCs - to grow at Narita

There will be some international growth at Tokyo Narita. Ethiopian Airlines will launch service via Hong Kong without local pick-up rights. Ethiopian will be Tokyo's only African carrier following the withdrawal of EgyptAir. ANA will open a new long-haul service to Houston and grow in Southeast Asia. Growth will also occur from LCCs, local (Jetstar Japan) and foreign.

Some of this growth will be offset by reductions from airlines including Garuda Indonesia.

See related reports:

Delta and United are decreasing Tokyo Narita capacity, and American Airlines may as well

Growth from Japanese carriers, and others, will be offset by a decreased presence from US carriers, continuing a medium-term trend. Delta, the largest US carrier at Narita, has decreased capacity every year since 2010 while United has done so since 2009. Delta will decrease 2015 Narita capacity (to/from, including intra-Asia flying) by 11%, according to OAG data. United will decrease by 15% while American will increase capacity by 1% as it re-configures 777-200s with more seats. American has decreased Narita capacity every year since 2010, but all US carriers will be smaller in 2015 than 2005.

Delta plans further decreases, in Narita and trans-Pacific in general, by using smaller widebody aircraft in the medium-term. More immediately, American Airlines could decrease Narita capacity if it is awarded the Haneda slot currently held by Delta Air Lines. American has proposed Los Angeles-Tokyo Haneda service and this would surely replace its existing Los Angeles-Tokyo Narita service.

American Airlines, Delta Air Lines and United Airlines Tokyo Narita capacity: 2005-2015

Outlook: Tokyo Narita is managing well. JAL's restructure and US capacity reductions are difficult to contend with

Tokyo Narita's low growth in 2014 and possible traffic decline in 2015 is confronting - especially in high-growth Asia. But Narita was dealt a difficult hand: comparing 2008 and 2015, Narita lost 4.9m seats one-way from JAL and the North American carriers (with the biggest declines from Delta and United). That is over 13,000 seats a day or 74 LCC A320 flights.

Tokyo Narita seat system capacity changes by airline/carrier type/region: 2015 v 2008

The old JAL and North American traffic was relatively easy to achieve: JAL was the flagship while Delta and United were familiar faces. Japan-US open skies took much political work, but there were vast changes needed to achieve 2015's traffic profile.

Narita has had to replace the traffic of effectively three well-established full-service airlines (JAL, Delta and United) with a multitude of smaller carriers.

Between 2008 and 2015, Tokyo Narita achieved a net increase of about a dozen airlines. Many of the new airlines and fast-growing carriers are LCCs and others are new-hub carriers from the Gulf (and Istanbul). These airlines have different needs (hence the LCCT), and in the case of Gulf carriers, are not as politically accepted.

Growth from new types of airline has often been achieved under open skies agreements. Tokyo was late to liberalise but once it started in 2010 it moved quickly: as of Feb-2015, Tokyo Narita has open skies with 23 countries and three territories. In 2014, 79% of international passengers flew under open skies agreements. Of the remaining 21%, 11.5% were to/from China, 1.6% to/from Germany and 7.7% from other markets (such as the Gulf).

Markets with open skies access to Tokyo Narita: as of Feb-2015

International passenger composition by aeropolitical environment: 2014

LCCs, foreign and domestic, promise more growth. But not all want to use the LCCT, a reminder no size fits all or even a few sizes fit most. There is certainly more for Narita and Japan as a whole to do. Few of Japan's ATMs accept foreign cards but this should change by the Tokyo Olympics - still some years away. Companies are making it easier for visitors to access WiFi, with the lack of GSM in Japan a challenge since visitors cannot simply acquire a local SIM card.

While more needs to be done, the changes in Japan and at Tokyo Narita airport have been significant.

Perspective should be maintained that this is a transition period. But this should not be used as an excuse to go slow on any further developments. The bigger risk is Japan's international pivot - 20m visitors by 2020, up from 10m in 2013 - may be conservative.